[Congressional Record (Bound Edition), Volume 145 (1999), Part 8]
[Extensions of Remarks]
[Page 11822]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 11822]]

 INTERNATIONAL TAX SIMPLIFICATION FOR AMERICAN COMPETITIVENESS ACT OF 
                                  1999

                                 ______
                                 

                           HON. AMO HOUGHTON

                              of new york

                    in the house of representatives

                          Monday, June 7, 1999

  Mr. HOUGHTON. Mr. Speaker, today I am joined by my colleagues, 
Messrs. Levin, Sam Johnson, Herger, Matsui, Crane, and English in 
introducing our bill, ``International Tax Simplification for American 
Competitiveness Act of 1999''. The world economy is globalizing at a 
pace unforseen only a few years ago. Our trade laws and practices have 
encouraged the expansion of U.S. business interests abroad, but our tax 
policy lags decades behind--in fact, in many cases, our international 
tax policy seems to promote consequences that are contrary to the 
national interest.
  In the 1960s, the United States accounted for more than 50 percent of 
cross-border direct investment. By the mid-1990s, that share had 
dropped to about 25 percent. Similarly, of the world's 20 largest 
corporations (ranked by sales), 18 were U.S.-headquartered in 1960. By 
the mid-1990s, that number had dropped to eight. The 21,000 foreign 
affiliates of U.S. multinationals now compete with about 260,000 
foreign affiliates of multinationals headquartered in other nations. 
The declining dominance of U.S.-headquartered multinationals is 
dramatically illustrated by the recent acquisitions of Amoco by British 
Petroleum, the acquisition of Chrysler by Daimler-Benz, the acquisition 
of Bankers Trust by Deutsche Bank, and the acquisition of Case by New 
Holland. These mergers have the effect of converting U.S. 
multinationals to foreign-headquartered companies.
  Ironically, despite the decline of U.S. dominance of world markets, 
the U.S. economy is far more dependent on foreign direct investment 
than ever before. In the 1960s, foreign operations averaged just 7.5 
percent of U.S. corporate net income. By contrast, over the 1990-97 
period, foreign earnings represented 17.7 percent of all U.S. corporate 
net income.
  Over the last three decades, the U.S. share of the world's export 
market has declined. In 1960, one of every six dollars of world exports 
originated from the United States. By 1996, the United States supplied 
only one of every nine dollars of world export sales. Despite a 30 
percent loss in world export market share, the U.S. economy now depends 
on exports to a much greater degree. During the 1960s, only 3.2 percent 
of national income was attributable to exports, compared to 7.5 percent 
over the 1990-97 period.
  Foreign subsidiaries of U.S. companies play a critical role in 
boosting U.S. exports--by marketing, distributing, and finishing U.S. 
products in foreign markets. U.S. Commerce Department data show that in 
1996 U.S. mulitnational companies were involved in 65 percent of all 
U.S. merchandise export sales. In the 1960s, the foreign operations of 
U.S. companies were sometimes viewed as disconnected from the U.S. 
economy or, worse, as competing with domestic production and jobs. In 
today's highly integrated global economy, economic evidence points to a 
positive correlation between U.S. investment abroad and U.S. exports.
  At the end of the 20th century, we confront an economy in which U.S. 
multinationals face far greater competition in global markets, yet rely 
on these markets for a much larger share of profits and sales, than was 
the case even a few years ago. In light of these changed circumstances, 
the effects of tax policy on the competitiveness of U.S. companies 
operating abroad is potentially of far greater consequence today than 
was formerly the case.
  As we begin the process of re-examining in fundamental ways our 
income tax system, we believe it imperative to address the area of 
international taxation. In an Internal Revenue Code stuffed with eye-
glazing complexity, there is probably no area that contains as many 
difficult and complicated rules as international taxation. Further, I 
cannot stress enough the importance of continued discussion between the 
Congress and Treasury of simplifying our international tax laws; and in 
making more substantial progress in regard to eliminating particular 
anomalies such as with the allocation of interest expense between 
domestic and foreign source income for computation of the foreign tax 
credit or in regard to how our antiquated tax rules deal with new 
integrated trade areas such as the European Union.
  None of us is under any illusion that the measure which we introduced 
removes all complexity or breaks bold new conceptual ground. We 
believe, however, that the enactment of this legislation would be a 
significant step in the right direction. The legislation would enhance 
the ability of America to continue to be the preeminent economic force 
in the world. If our economy is to continue to create jobs for its 
citizens, we must ensure that the foreign provisions of the United 
States income tax law do not stand in the way.
  There are many aspects of the current system that should be reformed 
and greatly improved. These reforms would significantly lower the cost 
of capital, the cost of administration, and therefore the cost of doing 
business for U.S.-based firms. This bill addresses a number of such 
problems, including significant anomalies and provisions whose 
administrative effects burden both the taxpayers and the government.
  The focus of the legislation is to put some rationalization to the 
international tax area. In general, the bill seeks in modest but 
important ways to: (1) simplify this overly complex area, especially in 
subpart F of the Code and the foreign tax credit mechanisms; (2) 
encourage exports; (3) enhance U.S. competitiveness in other 
industrialized countries.
  The bill would, among other necessary and important adjustments, make 
permanent the provision regarding the subpart F exception for active 
financial services income, modify other provisions that apply subpart F 
of the Code in inappropriate ways, eliminate double taxation by 
extending the periods to which excess foreign tax credits may be 
carried, restore symmetry to the treatment of domestic and foreign 
losses, and make needed adjustments to the so-called ``10/50 company'' 
provisions that burden the joint venture relationships that many of our 
companies form in their international business relations.
  In summary, the law as now constituted frustrates the legitimate 
goals and objective of American business and erects artificial and 
unnecessary barriers to U.S. competitiveness. Neither the largest U.S. 
based multinational companies nor the Internal Revenue Service is in a 
position to administer and interpret the mine numbing complexity of 
many of the foreign provisions. Why not then move toward creating a set 
of international tax rules which taxpayers can understand, and the 
government can administer? Therefore the proposed changes we believe 
represent a creditable package and a ``down payment'' on further reform 
in the international tax area. We urge our colleagues to join us in 
cosponsoring this important legislation.

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